Graduate Program

Economics

Degree Name

Master of Arts (MA)

Semester of Degree Completion

2006

Thesis Director

Minh Dao

Thesis Committee Member

Mukti Upadhay

Thesis Committee Member

Eric Hake

Abstract

Government expenditure depends upon the available resources and the scope of saving potential of the country. But the same requires a proper expenditure policy, so that the desired objectives of planned economic development could be achieved within a short span of time. In order to formulate the proper economic policy it is very necessary to know the importance of the causal relation of the expenditure and economic variables.

This paper investigates the causal relation between government expenditure and GDP growth. To find out the relationship between the two variables, a sample of eight developing countries from Asia and Africa is selected and annual time series data from 1972 to 2003 has been used. Three separate models to test for Wagner's law, Keynesian hypothesis and Granger causality have been developed in this paper. First chapter of the paper deals the introduction including statement of problem and some historical facts. Second chapter describes the review of literature and hypothesis.

Third chapter of the paper deals about the model of the thesis. Fourth chapter is the empirical result part of the paper. The chapter begins with the procedure of checking the order of integration on data, establishing a long-run relationship between the two series and conducting error correction mechanism to control the short term disturbances. Finally, the empirical results of Granger causality tests are included in this chapter.

Fifth chapter is the last part of this paper which includes conclusion and suggestions for future research.

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